JPMorgan Upgrades Medtronic After String Of Outperformances

After four beat-and-raise quarters, Medtronic PLC MDT has won a new bull.

The Rating

JPMorgan analyst Robbie Marcus upgraded Medtronic to Overweight and raised his price target from $100 to $109. (See the analyst's track record here.)

The Thesis

Marcus attributes his bullishness to Medtronic’s consistent outperformance and improved free cash flow.

“Over the next 12 to 18 months we believe Medtronic can grow at least in line with its end-markets at ~5% growth, plus we see a number of underappreciated data presentations and transformative new product launches that do not appear to be fully appreciated by the Street,” he wrote in a note.

His model only reflects modest estimate increases for 2020 and doesn't account for the following potential catalysts:
The release of TYRX’s WRAP-IT study results;

• Data announcements on Extravascular ICD implants;
• Late-2019 or early-2020 indication expansion for the Micra AV pacemaker;
• The launch of LINQ II;
• Development of a deep brain stimulation platform with sensing capabilities; and
• The 2020 rollout of the 690G hybrid-closed loop insulin pump.

The Micra AV, in particular, is seen to win Medtronic a competitive advantage and average-selling-price premium in mature pacemakers by expanding addressable patients from 16 percent to 56 percent.

Given its general circumstances, Medtronic is seen to have struck an inflection point with opportunity to seize large shares of large markets.

“With improved consistency of execution and a material step-up in FCF generation, the thesis on Medtronic has fundamentally changed to investing in a leading innovator with a multi-year runway for growth upside,” Marcus wrote. “[...] Following a solid year of execution, we now have greater confidence in management delivering above its promised targets.”

Price Action

At time of publication, the stock traded around $92.75 per share.

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Photo courtesy of Medtronic.